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Monday, December 16, 2013

Billion dollar military waste (again) and public transit profiteering

As I've written before, the U.S. Government - particularly the armed forces - is tremendously skilled at wasting tons of money in the name of national defense.

War profiteering, no-bid contracts, and unaccountable budgets are nothing new, yet they're still a big part of the American Way:

There’s ample evidence that the Pentagon has little idea where billions of taxpayer dollars are going. The five-sided building is awash in corruption and claims that an audit is impossible.

Many examples of waste are relatively unknown. And with the New Year approaching—a time of reflection and account taking—we’ve drawn up a short list of military cautionary tales from the past year.

Remember, this is a short list, and it’s drawn from the projects and stories we know about. A comprehensive litany of Pentagon waste is far, far longer.

Needless tanks, overpriced battle ships, failed auditing software, and unstable, decayed munitions in storage depots - all to the tune of billions of dollars.
Private contractors alone are raking in billions from the Pentagon:

In theory, these contractors are supposed to save taxpayer money, as efficient, bottom-line-oriented corporate behemoths. In reality, they end up costing twice as much as civil servants, according to research by Professor Paul C. Light of New York University and others has shown. Defense contractors like Boeing and Northrop Grumman cost almost three times as much.

Essentially, the federal government operates two contracting systems, separate and unequal. One hires profit-making corporations, the other handles nonprofits.

Washington lavishes taxpayers’ money on for-profits. Many smaller contracting firms making good money for doing relatively little work ring the nation’s capital and are commonly known as Beltway Bandits. Remarkably, some of these enterprises set themselves up with a Bermuda mailbox to escape paying the federal taxes – perhaps most notably Accenture, which runs the IRS website. (Accenture maintains that its structure was not designed to avoid taxes.)

Shockingly, even the defense industry has it's profit limits. Enter Cubic - the company behind military technology, training, and...Chicago's new public transit fare payment system, Ventra.

Consider another revealing chart in Credit Suisse’s report on Cubic for investors, in the “Sales Growth Outlook” section. It shows “Backlog as % of Forward Two-Year Sales” over a four-year period. That’s a way of describing projected payments in a contract that are guaranteed down the line, but can’t yet be counted as revenue. The chart has three lines. Two of them, for Cubic’s Defense Systems and Mission Support divisions, turn worrisomely south. Like the man said, “The threat of sequestration continues to hang over defense segment funding, and we think Mission Support will be under pressure owing to DoD scrutiny of contractor sources.” But the Transportations Systems line, conversely, shoots promisingly skyward.